Commodity Blog

Posts Tagged ‘fundamental analysis’

Suki Cooper of Barclays Capital explains here analysis and forecast for the average price of gold for 2011 in this video. The main bullish driving factor for the commodity is seen in the physical gold market and its still rising popularity. A peak in gold prices will be probably indicated by the ETF market pullback. Gold is still attractive in a short-term perspective.

In this interview, Jonathan Barratt of Commodity Broking Services Pty Ltd talks about how wheat has already reached its highest levels for the years as the funds were guided by the fear of droughts, lack of export and other speculative drivers. Meanwhile the real fundamentals suggest that the wheat shouldn’t be appreciating as it has been doing before.

In this video interview Jonathan Barratt talks about the future of the soft commodities. He’s making an emphasis on the sugar as an extremely volatile commodity, which continues jumping up and down both in long- and short-term perspectives. Jonathan also talks about the macroeconomic uncertainties that spur the speculative rallies in some of the low-volume commodities with some potential problems with supply, namely rubber.

Sugar rallied in 2009 amid tight supplies, becoming the top performing commodity in the past six months. Adverse weather conditions damaged crops in Brazil and India, the two largest producers in the world, causing sugar prices to double this year. And how the commodity is going to perform in 2010?

Fundamentals can be considered bullish for the sweetener. Investment funds, limited production in India and a weak dollar are major supporting factors for sugar prices. The commodity also helped by demand for ethanol from Brazil’s flex fuel car fleet.

Global supplies of sugar will remain low for the first half of 2010. The world is using more sweetener than it is producing, causing a deficit for two consecutive years. The global sugar supply deficit is estimated as much as 13.5 million metric tons in the 2009–2010 season. There is some pending dryness in regions including India and Australia, curbing the commodity productions in these countries. On the other side, a favorable weather conditions are expected in Brazil’s Center-South, where increasing production may start to ease the current global deficit.

Beet growers in France and Germany, the two largest producers in the Europe, expect the greatest harvest since 2006. But EU regulations state that farmers may produce no more than 13.3 million metric tons of sugar for food for the domestic market, and surplus beet is considered out-of-quota and turned into export sugar or products such as ethanol. For the foreseeable future the European Commission is not going to authorize the export of out-of-quota sugar in excess of the fixed quantitative limit. Beet harvest of French growers is highest in 50 years, adding to this year’s EU oversupply of 550,000 tons. In case European growers will convince Commission to loose regulation the commodity deficit can be significantly reduce by European sugar.

Considering all factors, the outlook for sugar is rather optimistic. Most analysts agree that next target price for the commodity should be about $0.30. Yet some analysts argue that price as low as $0.13 more realistic. They point that such factors as possibility that mills will produce more sweetener than previously predicted and probability for unloading of funds positions in case if sugar prices will fall may put downward pressure on sugar. Even considering this factors its price is not likely to fall below $0.10. As always caution is advised when dealing with commodities.

This video reviews the weekly price action of the gold trading instrument (vs. the U.S. dollar) and outlines the U.S. unemployment rate jump as the main reason for the latest bullish situation on the market. The fundamental factors play an important role in the formation of the gold price, but it’s also very speculative (especially XAU/USD pair). I’d recommend paying more attention to the mentioned support and resistance levels as the main landmarks, instead of the proposed fundamental analysis.

Today I offer two commodity trading videos for watching. They both describe the ”cost of carry” pricing model, which is a part of fundamental analysis for commodity futures valuation. The theory of ”cost of carry” states that the forward prices on the commodities are driven by four time-based factors: risk-free interest rate, storage cost, income and convenience yield. The first two factors are driving the forward price up because they add cost to keeping the actual commodity over the time. The last two factors are driving the forward price down because they reduce the cost of keeping the physical commodity for its owner. The first video explains the theory in general, while the second video presents an example of ”cost of carry” model calculation for the corn futures price. In that video the problems of this model become obvious — it doesn’t count in the seasonality of the commodities and the technical factors (like speculation).